HSBC rebuilding rates trading franchise

IFR 2532 - 04 May 2024 - 10 May 2024
3 min read
Christopher Whittall

HSBC is investing to rebuild its rates trading business in a reversal of some of the dramatic cuts it made to its investment bank a few years ago.

The Anglo-Asian lender has been selectively deploying more financial resources to these activities as it looks to regain lost ground, according to sources familiar with the matter, including a targeted and measured increase in the amount of capital available to parts of the business.

The bank is concentrating on “flow” products such as government bonds and derivatives that don’t consume large amounts of capital, the sources said, with a particular focus on catering to its large corporate client base. In a sign of its progress, HSBC has now returned to roughly the same staffing level it had in rates trading before its 2020 reorganisation, the sources said.

HSBC is the latest bank to increase its presence in trading products linked to interest rates as activity has picked up in these markets in response to central banks tightening policy aggressively to lower inflation. The top 12 banks generated US$24bn in G-10 rates trading revenues in 2023, according to analytics firm Coalition Greenwich, a slight decline from the previous year but still 40% above 2019.

Many believe higher levels of interest rates, along with an accompanying rise in volatility and client activity, has put profits in banks’ macro trading businesses onto a sustainably higher footing. That contrasts with much of the previous decade, when ultra-low interest rates and tougher regulations following the 2008 financial crisis crimped returns.


Those conditions prompted many banks to retreat from rates trading, limiting their ability to take advantage of the more recent revenue upswing. HSBC said in early 2020 it was shrinking its rates business as chief executive Noel Quinn moved to overhaul the bank to improve shareholder returns.

HSBC said at the time it would reduce the amount of capital deployed to its rates business as part of a broader plan to shed more than US$100bn of risk-weighted assets by the end of 2022, and that it would exit G-10 long-term derivative market making in the UK.

Quinn announced his retirement on Tuesday after five years in the job. The rebuild of HSBC’s rates trading business has the support of the bank’s senior management, sources said, as HSBC has shown signs of switching to growth mode in recent quarters.

HSBC no longer details how much revenue it generates in rates trading, but it reported US$324m in global debt market revenues in the first quarter, which covers the rates and credit trading businesses.

That is far below the US$490m HSBC said it generated in rates trading in the first quarter of 2019 and less than half the nearly US$700m it made in that business during the same period in 2017. Those figures, combined with revenue expansion across the wider industry, suggest HSBC has room for growth if its rebuild plans gain traction.

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